Written by Sumit Roy  |

September 06, 2012

Morning Call: Gold Surges To 6-Month High After ECB Announcement, Oil Rises On Strong U.S. Jobs Data

Details

Gold and silver lead commodities higher.

Commodities rose broadly, led by precious metals, after the European Central Bank announced it will resume its bond-buying program in an effort to bring down stubbornly higher interest rates on Spanish and Italian debt. The decision was expected, but nonetheless welcomed by markets.

In his remarks, ECB President Mario Draghi said the central bank's bond purchases are potentially unlimited, but that they will be fully sterilized. In other words, the ECB will not expand its balance sheet and partake in quantitative easing as the U.S. Federal Reserve has done.

Spanish 10 year bond yields—currently seen as the best gauge of eurozone sovereign debt fears—fell by 26 basis points to 6.15 percent in response to the news.

Meanwhile, a strong U.S. employment figure from ADP, a payroll processor, was an encouraging sign ahead of the official government nonfarm payrolls report on Friday. Employers added 201K jobs in August, said ADP, well above that anticipated 140K.

In other U.S. jobs news, the number of people filing for unemployment benefits fell to 365K last week, down more than anticipated.

The U.S. Dollar Index fell by 0.2 percent to 81.07.

• The ECB's move to buy bonds spurred another leg higher in precious metals prices. Gold and silver hit the highest levels since March and April, respectively. The yellow metal was last trading up by $12.55, or 0.74 percent, to $1705.55, while the gray metal jumped $0.47, or 1.44 percent, to $32.72.
  
  Platinum gained $7.99, or 0.51 percent, to $1579.74 and palladium rose by $1.25, or 0.19 percent, to $646.25.
  
  "What is clear is the break of $1,700 is going to pull in some additional momentum-following money. I think it will give further encouragement to those who are invested in physical [gold] and it is adding confidence to those who are already exposed...so this could be sustained," said Tom Kendall, an analyst at Credit Suisse.
  Gold & Silver Face Key Technical Levels Ahead Of Key Fed Decision
  
  
• Crude oil is higher ahead of the EIA's Weekly Petroleum Status Report. The less-authoritative API report showed big drawdowns in stocks due to Hurricane Isaac, which shut down operations in the Gulf of Mexico last week.
  
  The API said that crude inventories fell by 7.2 mmbbl, gasoline inventories fell by 2.3 mmbbl, and distillate inventories fell by 0.1 mmbbl last week.
  
  Brent was last trading up by $0.76, or 0.67 percent, to $113.85, while WTI gained $0.97, or 1.02 percent, to $96.33.
  Oil Rises a Second Day on U.S. Supply Drop
  
  
• Natural gas was last trading up by $0.02, or 0.54 percent, to $2.81/mmbtu ahead of the EIA's Weekly Natural Gas Storage report. Operators may have injected 32 bcf to 36 bcf feet into storage last week, according to a survey of analysts by Bloomberg.
  Ahead of the Bell: Natural Gas Supplies
  
  
• The grain complex is mixed. Corn was last trading up by $0.06, or 0.76 percent, to $7.95/bushel, while soybeans fell by $0.06, or 0.34 percent, to $17.42 and wheat added $0.12, or 1.42 percent, to $8.57.
  
  "Although we should remain vigilant, current prices do not justify talk of a world food crisis. But the international community can and should move to calm markets further," FAO Director General Graziano da Silva said.
  Soy eases on harvest start, UN warns supply still shrinking
  
  
• Copper was last trading down by $0.02, or 0.61 percent, to $3.51/lb on Comex.
  
  "There is very little demand," said a Shanghai-based trader. "The premium on imported copper is only about $50, reflecting low buying interest."
  Copper slightly down
  
  

What to Watch For:

4:45 a.m. ET: ECB Interest Rate Decision

5:15 a.m. ET: ADP Employment Change

5:30 a.m. ET: Initial Jobless Claims

10:00 a.m. ET: ISM Non-Manufacturing Composite

10:30 a.m. ET: Weekly Natural Gas Storage Report

11:00 a.m. ET: Weekly Petroleum Status Report